Simulations Plus, Inc.

Greetings and welcome to the Simulations Plus Fourth Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Brian Siegel from Hayden IR. Thank you, Mr. Siegel. You may begin your presentation.

Good afternoon, everyone. Welcome to our fourth quarter fiscal 2021 financial results conference call. Hosting the call today are Simulation Plus' CEO, Sean O'Connor, and CFO, Will Frederick. An opportunity to ask questions will follow today's presentation. Before beginning, I would like to remind everyone that except for historical information, the matters discussed in this presentation are forward-looking statements that involve a number of risks and uncertainties. Words like believe, expect, anticipate mean that these are our best estimates at the time, but that there can be no assurances that expected or anticipated results or events will actually take place, so our actual future results could differ significantly from those statements. Factors that could cause or contribute to such differences include, but are not limited to, our ability to maintain our competitive advantages, acceptance of new software and improved versions of our existing software by our customers, the general economics of the pharmaceutical industry, our ability to finance growth, our ability to continue to attract and retain highly qualified technical staff, our ability to identify and close acquisition on terms favorable to the company, and a sustainable market. Further information on our risk factors is contained in our quarterly and annual reports and filed with the U.S. Securities and Exchange Commission. With that said, I'd like to turn over the call to Sean O'Connor. Sean?

Thank you, Brian. We had an encouraging end to the fiscal year as we saw continued momentum in our software business, and the decline in our services business was less than we saw in the prior quarter. For fiscal 2021, our total revenue growth came in at 12%, exceeding our guidance of 5% to 10%. Software revenue growth for fiscal 21 was 28%, exceeding our guidance of 20% to 25%. And the service revenue decline was 6%, slightly better than our guidance of 7% to 12%. Our software business had a good quarter, reflecting the strength of both GastroPlus and AdMet Predictor, each growing by at least 20%, partially offset by the expected decline in Monolix Suite due to early renewals that occurred in prior quarters. Software revenue growth in fiscal 2021 increased to 28% compared to last fiscal year's growth rate of 17% and 11% in fiscal 2019. Gessler Plus revenues grew 20% in the fourth quarter, and we attribute this strong performance to our industry-leading technology. and focused upselling efforts, which produced 14 new commercial contracts during the quarter. During the fourth quarter, GastroPlus also saw 17 peer-reviewed journal articles reflecting the strength and recognition of our industry-leading PBPK platform. ADMET predictor revenue growth in the fourth quarter was 26% as it continued to benefit from the Q3 product release that added valuable new features and functionality. Additionally, I want to emphasize that both GastroPlus and AdMet Predictor continue to expand their strong leadership position in the market during the year. For example, we saw 20 multi-year GastroPlus license signed, three new $100,000 plus customers, and 14 upsells during the year. And our new DDI module has been very well received, all of which are a strong validation of our leadership position. As anticipated, Monolix suite revenue declined in the fourth quarter due to early renewals in prior quarters. For the full year, revenue growth was 20%, as we continue to see both new commercial client adoption as well as displacing alternative products and taking market share from our primary competitor. Turning to our services business, as a reminder, our service revenue is non-recurring. Accordingly, this business can exhibit volatility both quarterly and annually. PKPD projects are typically in the 1 to 200,000 range, and QSP-QST projects can be significantly larger. Sometimes these projects are accelerated, delayed, or even canceled by our customers based on their internal priorities or timelines and are not under our control. While it was a challenging second half of the fiscal year due to the uncharacteristic events of the third quarter with higher than normal customer project delays and cancellations. We saw signs of optimism during the fourth quarter as revenue decreased less than expected, our backlog grew sequentially, and our pipeline continued to build. During Q4, we saw the number of customer project delays and cancellations return to more normal levels. We also had a good bookings quarter highlighted by closing five new clients, which contributed to a 10% increase in backlog for the quarter and a 49% increase for the full year, which was about 110% of our internal target. During the quarter, we also provided critical support for a multi-regional regulatory approval and supported an FDA submission for a new COVID-19 therapy. For the year, we took action and made several operational improvements that drove margin enhancements, leading to increased average contract value, project yield, and consultant utilization rates. For the QSP-QST business, revenue was down in Q4 as expected. Despite this decline, we saw positive signs that point to an inflection point in this business. We had one new and one renewal of DILI-SUM consortium members during the quarter and overall pipeline activity accelerated, reflecting strong momentum as we enter fiscal 2022. We are also seeing toxicology project opportunities picking up and have multiple QSP projects in late stage proposal status. I'm also encouraged that we have already achieved our bookings target for Q1 of the new fiscal year. And finally, our PBK business saw a 63% increase in backlog for the year and finished strong with two significant FDA-funded projects announced during Q4. Looking to fiscal 2022, modeling and simulation adoption continues to be strong in the pharma and biotech marketplace. Internal modeling and simulation resources continue to grow, and they are seeking out our software platforms to achieve their objectives. Outsourcing also remains a robust part of our clients' efforts to meet their needs, and we're here to support them with our service business. Our software business carries strong momentum into the new year as we continue increasing our revenue growth rate as a result of enhancements to our technology, ongoing product portfolio expansion both internally and through acquisitions, and investment in our sales and marketing efforts. In fiscal 2021, our service business experienced the downside of what can be a volatile business, but we saw no fundamental changes in the market that would prevent this business from returning as a positive contributor to revenue growth in the future. Despite this decline in fiscal 2021, we enter the new year with increased pipeline activity, a rebuilt backlog that should drive sequential revenue growth on a quarterly basis in fiscal 2022. With these positive tailwinds, the financial outlook we are providing today anticipates a recovery of our services business and growth accelerating sequentially as the fiscal year progresses. We expect to return to double-digit growth in total revenue in the range of 51 to 53 million, reflecting 10 to 15% year-over-year growth. We expect software to be in the range of 50 to 5 to 60% of total revenue, and services to be in the range of 40 to 45% of total revenue. And finally, we will continue our successful M&A strategy to expand our software portfolio and service offerings and grow our overall market opportunity to broaden our capabilities and further support our clients. Of course, any acquisition would be incremental to this outlook, and with future acquisitions, we believe we can continue to grow at a pace that supports our CAGR target above 20% that we've achieved since the Cognigin acquisition in fiscal 2015. Let me now turn the call over to our CFO, Will Frederick, to discuss the financial results.